Foreign direct investment (FDI) to Asia reached a record last year, even as funds flowing into the region rose by less than the global rate of increase, according to the World Investment Report 2012 of the United Nations Conference on Trade and Development (UNCTAD).
Funds flowing into Asia, recovering strongly from the after-effects of the 2008 global financial crisis, rose 12% in 2011 to secure 27%, or US$423.1 billion, of the $1.5 trillion of global FDI inflows last year. At the same time, FDI outflows from China, Hong Kong, Singapore, Indonesia and India stagnated during the periode.
Asia’s share of FDI has surged from its pre-financial crisis level of 2007, when it attracted $349 billion, or 17% of global inflows. But with global FDI growing 16% last year, “surpassing the 2005- 2007 pre-crisis level for the first time”, Asia’s share is now down two percentage points from the 29% it secured two years ago, according to the World Investment Report (WIR) 2012, subtitled “Towards a New Generation of Investment Policies”, released on July 5.
The United States was the top FDI recipient last year at $227 billion, followed by China ($124 billion), Belgium ($89 billion), Hong Kong ($83 billion) Brazil ($66.6 billion) and Singapore ($64 billion). India ranked 13th, attracting $31.5 billion, while Indonesia received $18.9 billion and Malaysia $11.9 billion.
Even then, funds moving to Indonesia rose 37% last year from 2010′s $13.8 billion. That increase outpaced the jump in funds going into Singapore (up 33%), India (31%) and Malaysia (31%). Funds heading to China gained 16% and to Hong Kong 17%.
Asian economies received most of their investments through FDI outflows from developed countries of European Union, North America and Japan, which rose by 25% in 2011 to reach $1.24 trillion from 2010′s $989.6 billion.
The WIR 2012 report said FDI from the US was “driven by a record level of reinvested earnings (82% of total FDI outflows)”, partially fueled by transnational corporations that built up on their foreign cash holdings.
The rise of FDI outflows from the EU was due to “cross-border mergers and acquisitions”, while “an appreciating yen improved the purchasing power of Japanese transnational corporations, resulting in a doubling of their FDI outflows, with net mergers and acquisitions in North America and Europe rising 132% in 2011″.
Total inflows to East and Southeast Asia at $336 billion accounted for 22% of the global total in 2011, compared with about 12% before the 2008 global financial crisis.
Within this region, Southeast Asia, particularly Brunei Darussalam, Indonesia, Malaysia and Singapore, is “catching up” with East Asia as inflows increased 26% from 2010 to $117 billion last year. FDI to East Asia gained 9% to $219 billion.
The report mentioned that relatively lower-income economies of the 10-member Association of Southeast Asian Nations (ASEAN), such as Cambodia, Laos and Myanmar, performed well in terms of attracting investment, in part due to East Asian countries, particularly China, experiencing rising wages and production costs, increasing the competitiveness of other countries in the region. (Other ASEAN members are Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. )
In China, FDI flows to services staggered above those to manufacturing for the first time due to a rise in flows to “non-financial services and a slowdown in flows to manufacturing”. FDI in finance is also expected to grow as the country continues to open its financial markets and as foreign banks expand their presence through mergers and acquisitions.
FDI to South Asia rose 22% to $38.9 billion in 2011, with India accounting for nearly four-fifths of the total inflow to the region. Pakistan ranked second at $1.33 billion, declining 34% from 2010.
Bangladesh had a record $1.13 billion in FDI last year, up from $913 million in 2010. The country gained from increased reinvestment and intra-company loans offered by existing foreign companies, including those in the telecoms, energy and financial sectors.
While the rest of Asia’s regions fared well last year, West Asia’s FDI inflow fell 16% to $48.7 billion in 2011, the third successive year of declines and now down by almost half the $92 billion in FDI of 2008.
The UNCTAD annual survey argued that the fall-off is due to the cancellation of large-scale investment projects, especially in construction, as project finance dried up in the wake of the global financial crisis. Unrest in some countries last year also deterred investment.
More positive was Turkey, with a 74% increase in FDI inflow to $15.9 billion, from $9 billion in 2010, through a “three-fold increase in cross-border mergers and acquisitions sales”, according to the report.
Last year, FDI outflows from Asia rose 2% to $280 billion last year, accounting for 16% of the $1.69 trillion in global FDI outflow.
Outflow from East Asia dropped by 9% to $180 billion. FDI from Hong Kong (China), the region’s financial center and largest source of FDI, declined 14% in 2011 to $82 billion and from China by 5% to $65 billion.
Outflow from Southeast Asia including Indonesia, Thailand and Singapore increased 36% to $59.9 billion from 2010′s $44.1 billion.
The WIR 2012 report reasoned that the decline in FDI outflows from Asia was due to a 12% decline in value of overseas “greenfield” projects, which are ground-up new investments in foreign countries by firms based in the Asian region.
In the report, UNCTAD predicted that global FDI inflows will continue to increase at a “moderate but steady pace, reaching $1.8 trillion in 2013 and $1.9 trillion in 2014, barring any macroeconomic shocks”.
by Syed Tashfin Chowdhury*
*The Editor of Xtra, the weekend magazine of New Age, in Bangladesh.